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The Fading American Dream: Trends in Absolute Income Mobility Since 1940

Author

Listed:
  • Raj Chetty
  • David Grusky
  • Maximilian Hell
  • Nathaniel Hendren
  • Robert Manduca
  • Jimmy Narang

Abstract

We estimate rates of “absolute income mobility” – the fraction of children who earn more than their parents – by combining historical data from Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records. Our approach overcomes the key data limitation that has hampered research on trends in intergenerational mobility: the lack of large panel datasets linking parents and children. We find that rates of absolute mobility have fallen from approximately 90%for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers. In counterfactual simulations, we find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the “American Dream” of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution.

Suggested Citation

  • Raj Chetty & David Grusky & Maximilian Hell & Nathaniel Hendren & Robert Manduca & Jimmy Narang, 2016. "The Fading American Dream: Trends in Absolute Income Mobility Since 1940," NBER Working Papers 22910, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22910
    Note: CH DAE EFG LS PE
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    File URL: http://www.nber.org/papers/w22910.pdf
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    References listed on IDEAS

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    1. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2016. "Distributional National Accounts: Methods and Estimates for the United States," NBER Working Papers 22945, National Bureau of Economic Research, Inc.
    2. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
    3. Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez & Nicholas Turner, 2014. "Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility," American Economic Review, American Economic Association, vol. 104(5), pages 141-147, May.
    4. Christian Broda & Ephraim Leibtag & David E. Weinstein, 2009. "The Role of Prices in Measuring the Poor's Living Standards," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 77-97, Spring.
    5. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    6. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How to keep the American Dream intact?
      by paragwaknis in Musings of the Sorts on 2017-01-19 03:01:08
    2. Sam Watson’s journal round-up for 1st May 2017
      by Sam Watson in The Academic Health Economists' Blog on 2017-05-01 16:00:15
    3. On the Distribution of Wealth
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-04-16 11:56:16

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    Cited by:

    1. Davis, Jonathan & Mazumder, Bhashkar, 2017. "The Decline in Intergenerational Mobility After 1980," Working Paper Series WP-2017-5, Federal Reserve Bank of Chicago.

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • J0 - Labor and Demographic Economics - - General

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